2025 (5) TMI 121 - AT - Income Tax

Addition u/s 69A - unexplained cash deposits during the demonetization period - HELD THAT - The appellant has not submitted the copy of the return for earlier assessment years. Be that as it may the appellant has also not been able to controvert the findings of the lower authorities in the proceedings before us. In absence of credible and corroborative evidence to support the claim of the opening cash balance as on 01.04.2015 and 01.04.2016 the explanation of the appellant cannot be accepted in toto. The principle of human probability is also clearly applicable to the facts of the appellant. The assessee is required to incur expenses for various personal and household purposes which would cause depletion of the cash in hand available with the assessee. Since the return for AY.2016-17 was filed after demonetization credence cannot be given to the cash in hand as on 01.04.2016 in absence of any corroborative and supporting evidence. It would be fair and reasonable if 50% of the cash in hand as reflected in the return of income filed for AY.2015-16 on 24.05.2016 before demonetization period is allowed to assessee for the purpose of making deposit in the bank account. The cash in hand as on 01.04.2015 was Rs. 25, 13, 128/-. The AO is accordingly directed to delete Rs. 12, 56, 564/- and the remaining addition is upheld. Accordingly the ground No.1 is partly allowed. Levy of tax u/s 115BBE of the Act at enhanced rate of tax @ 60% on the addition u/s 69A - The provisions of section 115BBE of the Act was enacted on 15.12.2016 and hence cannot be applied for the year under consideration. AO is directed to tax the addition at normal rate of tax and applicable surcharges and cess if any. The assessee is accordingly allowed relief against taxing the addition at higher rate u/s 115BE of the Act. Hence we allow the ground No.2 of the assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the addition of Rs. 25,20,000/- made by the Assessing Officer (AO) under section 69A of the Income-tax Act, 1961 (the Act) on account of unexplained cash deposits during the demonetization period is justified, considering the explanation and evidences submitted by the assessee regarding the source of cash deposits.

(b) Whether the levy of tax under section 115BBE of the Act at the enhanced rate of 60% on the addition made under section 69A is applicable for the assessment year 2017-18, given the date of enactment of section 115BBE and relevant judicial precedents.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of addition of Rs. 25,20,000/- under section 69A of the Act on account of unexplained cash deposits during demonetization period

Relevant legal framework and precedents: Section 69A of the Act deals with unexplained cash credits and empowers the AO to make additions to income where the assessee fails to satisfactorily explain the source of cash deposits. The burden lies upon the assessee to demonstrate the legitimacy of cash deposits, especially during scrutiny under demonetization-related provisions.

Court's interpretation and reasoning: The Tribunal noted that the AO observed cash deposits of Rs. 25,20,000/- in the assessee's bank account during the demonetization period. The assessee claimed that this amount represented cash in hand as on 01.04.2016, supported by returns of income for AY 2016-17 showing a cash balance of Rs. 31,07,483/-. However, the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] found the explanation unsatisfactory due to lack of credible and proximate source documentation, absence of cash books or cash flow statements, and improbability of holding such large cash sums over extended periods without investing or utilizing them.

Key evidence and findings: The assessee filed returns for AYs 2015-16 and 2016-17 declaring modest incomes (Rs. 3,71,590/- and Rs. 3,41,290/- respectively), which did not support accumulation of large cash balances. The assessee also failed to provide corroborative evidence for cash inflows and outflows during FYs 2013-14, 2014-15, and 2015-16. The Tribunal emphasized that the return for AY 2016-17, which was crucial for establishing the cash balance as on 01.04.2016, was filed belatedly on 18.03.2017, after the demonetization period, undermining its reliability.

Application of law to facts: Applying the principle under section 69A, the Tribunal held that the assessee failed to satisfactorily explain the source of cash deposits. The principle of human probability was invoked, noting that it was improbable for the assessee to retain such large cash amounts over years without expenditure or investment. The Tribunal found that the lower authorities rightly disbelieved the claim of cash in hand due to lack of credible evidence and rational explanation.

Treatment of competing arguments: The assessee argued that the cash deposits were legitimate, supported by opening cash balances and cash flow tables submitted. Reasons such as lack of interest on current accounts, absence of chest facilities, instability of the co-operative bank, and fear of bank robberies were cited for holding cash. However, the Tribunal found these reasons insufficient to override the lack of documentary proof and the improbability of holding large cash amounts for extended periods.

Conclusions: The Tribunal partially accepted the assessee's claim by allowing 50% of the cash balance as on 01.04.2015 (Rs. 12,56,564/-) to be considered as legitimate source for deposit, directing the AO to delete this portion from the addition. The remaining addition was upheld due to insufficient evidence and failure to explain the source.

Issue (b): Applicability of section 115BBE of the Act for enhanced tax rate on addition under section 69A for AY 2017-18

Relevant legal framework and precedents: Section 115BBE, introduced on 15.12.2016, prescribes a flat tax rate of 60% on income declared or assessed under certain sections including 69A. The question was whether this provision applies retrospectively to AY 2017-18, which covers the financial year 2016-17.

Court's interpretation and reasoning: The Tribunal referred to several decisions of coordinate benches and Division Benches of the Tribunal, which uniformly held that the amendment introducing section 115BBE is not retrospective and thus does not apply to AY 2017-18. The Tribunal relied on precedents including cases from Surat, Indore, and Jabalpur Benches which supported this view.

Key evidence and findings: The assessee relied on Tribunal decisions where enhanced tax rates under section 115BBE were held not applicable to AY 2017-18. The revenue did not contest these precedents effectively.

Application of law to facts: Given that the provision was enacted on 15.12.2016 and the relevant assessment year relates to the financial year prior to or overlapping this date, the Tribunal held that the enhanced tax rate under section 115BBE could not be applied for AY 2017-18.

Treatment of competing arguments: The revenue supported the application of section 115BBE, but the Tribunal found the precedents and legislative intent compelling against retrospective application.

Conclusions: The Tribunal directed the AO to tax the addition at normal rates of tax with applicable surcharge and cess, granting relief to the assessee on this ground.

3. SIGNIFICANT HOLDINGS

"Considering the facts discussed above, it would be fair and reasonable if 50% of the cash in hand as reflected in the return of income filed for AY.2015-16 on 24.05.2016, before demonetization period, is allowed to assessee for the purpose of making deposit in the bank account."

"In absence of credible and corroborative evidence to support the claim of the opening cash balance as on 01.04.2015 and 01.04.2016, the explanation of the appellant cannot be accepted in toto."

"The principle of 'human probability' is also clearly applicable to the facts of the appellant."

"The provisions of section 115BBE of the Act was enacted on 15.12.2016 and hence cannot be applied for the year under consideration."

"The AO is accordingly directed to tax the addition at normal rate of tax and applicable surcharges and cess, if any."

Core principles established include:

• The burden of proof lies on the assessee to satisfactorily explain the source of cash deposits under section 69A.
• Credibility of returns filed after due dates, especially post-demonetization, is limited without corroborative evidence.
• The principle of human probability is a valid consideration in assessing the plausibility of cash holdings over time.
• Section 115BBE, enacted post 15.12.2016, is not retrospective and does not apply to AY 2017-18.

Final determinations:

• Rs. 12,56,564/- (50% of opening cash balance as on 01.04.2015) is allowed to be excluded from addition under section 69A; the balance addition of Rs. 12,63,436/- is upheld.
• The addition made under section 69A shall be taxed at normal rates and not at the enhanced rate under section 115BBE for AY 2017-18.
• The appeal is partly allowed accordingly.